Project Procurement

Management
Lecture-8
What is Procurement?
Project Procurement Management (PPM) includes the
processes necessary to purchase or acquire products, services,
or results needed from outside the project teams. At some
places, it is the Goods, Work or Services (GWS) needed for
the project.

It also includes the contract management and change control
processes required to develop and administer contracts or
purchase orders issued by authorized project management
team.

Project Procurement Management also controls contractual
obligations placed on the project team by the contract.
How and when do we enter
into Project Procurement
Management?

When do we enter into PPM?
When the following things are ready
Stakeholder register
Activity resource requirement
Activity cost estimates
Project schedule
Risk register

Procurement Management
Procurement management refers to planning and
control of the following
Equipment , material or components designed and
provided by vendors specifically for the project
It may be a portion of a work package or entire work
package
It may be off-the-shelf (OTS) equipment and
components
bulk material, like cement, metal piping etc.
Consumables items; nails, bolts, lubricants
Support equipment for construction, cranes, lifts etc
Administrative equipment, computers, project office
facilities

Procurement of Items
Procurement means the activities related to purchase of
subcontracted items
Procurement items are usually classified as goods, work or
services (GWS)
Goods represent raw material or produced items (tools/machinery)
Work means contracted labor
Service means consultation
Planning, budgeting, scheduling and follow-up control all
fall under procurement management
Logistics plan includes everything related to the transport
and storage of materials for the projects. GWS items
cannot be scheduled to arrive just-in-time (JIT). Provision
must be made to store and protect them until they are
needed.


What is a Contract?
It is a legal document between a buyer and a seller. It provides
a mutual binding agreement that obligates the seller to
provide the specified product, service or result and obligates
the buyer to provide monetary or other valuable
consideration. The agreement can be simple or complex.
A procurement contract will include terms and condition also.
A contract can be an agreement, an understanding, a
subcontract or a purchase order.
Types of Contracts
Fixed Price Contract
Firm Fixed Price (FFP)
Most commonly used where scope is very clear. It can only be changed
if the scope changes or there is a change in specifications. Any cost
increase is the responsibility of the seller
Fixed Price Incentive Fee (FPIF)
Price ceiling is set and all costs above the price ceiling are the
responsibility of the seller, who is obligated to complete the work.
Incentive is related to cost, schedule and or performance. The final
contract price is determined after the completion of all work based on
the sellers performance.
Fixed Price with Economic Price Adjustment (FPEPA)
This happens if the contract is spanned for a considerable period of
time. It caters for inflation, cost increase / decrease of specific
commodities. It is attached with some reliable financial index. It
protects both buyer and seller from external conditions.
Types of Contracts
Cost-reimbursement Contracts:
Cost plus Fixed Fee Contract (CPFF)
The seller is reimbursed for all allowable costs for performing the
contract work and receives a fixed fee (can be a %age or
predetermined cost). Fee is paid only for the completed work and
does not change due to seller performance.
Cost plus Incentive Fee Contract (CPIF)
In this contract the final cost are less or greater than the original
estimated cost. In this case, both the buyers and sellers share cost
from the departure based upon a cost sharing formula e.g. (20/80)
Cost Plus Award Fee Contract (CPAF)
The determination of FEE is based solely on the sellers
performance and is generally not subject to appeals. The majority
of the fee is earned only based on the satisfaction of certain broad
subjective performance criteria defined and incorporated in the
contract.

Time & Material Contract
(hybrid or Adhoc)
Normally related with smaller projects and is
mostly built on item / day basis. Can be left
open-ended.

These contracts are often used for staff
augmentation, acquisition of experts, or any
outside support when a precise statement of
work cannot be quickly arranged.
Processes in PPM
Plan Procurement Management
Conduct Procurement
Control Procurement
Close Procurement

Plan Procurement Management
What we have
Project Management Plan
Requirement Document
Risk register (List of Risks, Result of Risk Analysis & risk responses)
Activity resource requirements
Project schedule (time when required)
Activity cost estimates (Cost management)
Stakeholder register
Plan Procurement Management
What we do:
Make-or-buy analysis, Expert judgment, Market Research, Meetings
What we get:
Procurement Management Plan
Types of Contracts
Risk management Issues
Estimate evaluation process
Those actions that Project management Team can take unilaterally
Standardized procurement documents, if needed
Managing multiple suppliers
Coordinating procurement as per schedule
Manage assumptions and constraints
Handling lead time in purchases
Handling make or buy decisions
Statement of Work (SOW) for each procurement
Procurement Document (bid, tender or quotation, RFI, RFQ, RFP, IFB)
Source Selection Criteria
Make of Buy decisions
Change Request (integrated change control process)
The Procurement Process
Conduct Procurement
What we have:
Project Management Plan
Procurement document
Source Selection Criteria (Who qualifies to be a supplier)
Seller Proposal
Project Document (Risk register & risk related contract decisions)
Procurement Statement of Work (specifications, quantity, quality,
work location)
Make-or-buy decision
Conduct Procurement
How we do it:
Bidder conference
Proposal evaluation techniques
Independent estimates
Expert judgment
Advertising
Analytical Technique
Procurement negotiations

Conduct Procurement
What we get:
Selected sellers
Agreements (Contracts & Terms and Conditions)
Resource calendars
Change request

Control Procurement
What we have:
Procurement document
Project management plan
Agreements
Approved change requests
Work performance reports
Work performance data
Control Procurement
How we do it:
Contract change control system
Procurement performance review
Inspection and audits
Performance reporting
Payment systems (Account Payables)
Claim administration
Record management system (manage contract & Procurement
documents)
Control Procurement
What we get:
Work performance information
Change request

Close Procurement
What we have:
Project management Plan
Procurement documents
What we do:
Procurement audits
Negotiated settlements
Record management systems
What we get:
Closed procurements
Organizational process updates
1. The fixed price contract is
advantageous to the buyer
because it:
A. requires extremely well defined specifications
B requires formal procedures for scope changes
C Contractor assumes financial and technical risk
D has a known cost

2. Unit Price (UP) contract
provides:
A. a reimbursement of allowable costs plus a fixed fee which is
paid proportionately as the contract progresses
B. a reimbursement of allowable cost of services performed
plus an agreed upon percentage of the estimated cost as
profit
C. the supplier with a fixed price for delivered performance
plus a predetermined fee for superior performance
D. a fixed price where the supplier agrees to furnish goods and
services at unit rates and the final price is dependent on the
quantities needed to carry out the work

3. In Which phase of the
Acquisition Process Cycle does
source qualifications reside?
A. Pre-Award
B. Award
C. Post Award
D. Origination
4. Performance bond should
always provide what part of
the contract value?

A 10 percent
B 25 percent
C 50 percent
D 100 percent
E Normally a performance bond, depending upon the
state, only stipulates that the contractor will guarantee
the work for a certain period of time.

5. Which contract type places
the most risk on the seller?
A. Cost plus percentage fee
B. Cost plus incentive fee
C. Cost plus fixed fee
D. Fixed price plus incentive fee
E. Firm fixed price

6. What is the last item a
project manager must do to
finalize project close-out?

A. Reassign the team
B. Contract completion
C. Archive the project records
D. Complete lessons learned
E. None of the above.
F. All the above

Answers
1-C
2-D
3-B
4-D
5-E
6-B
Thank you




Any questions?